Intrepid 3Q earnings up nine-fold

Intrepid Potash Inc. reported a nine-fold increase in net income for the third quarter ending Sept. 30, 2008, to $49.7 million ($.66 per diluted share) compared to the year-ago pro forma net income of $5.3 million ($.07 per share). Third-quarter sales moved up to $146.2 million from $52.8 million.

“We continued to execute on both our marketing plan and expansion opportunities in the third quarter,” said Bob Jornayvaz, Intrepid CEO. “Our realized potash price further widened relative to our North American competitors as we focused on our regional markets and on paying close attention to the opportunities in the spot market for potash. We made progress on our capital projects, with several key projects scheduled for final completion during the upcoming fourth quarter maintenance turnaround. Without a doubt, the financial markets have created unsettling equity values and hesitation among fertilizer buyers. We believe that our strong balance sheet, cash position, and our sole focus on potash as the fertilizer nutrient with the best overall fundamentals, position us uniquely in the market.”

Although production and sales volumes were down during the third quarter, prices were up significantly, with an average potash price of $623/st versus the year-ago $193/st. Intrepid said the $430/st increase in price was achieved by shortening the lag time between posting a price increase and realizing the price increase. Intrepid said it posted its red granular at FOB Carlsbad at $800/st at the beginning of September, and it continues to sell at that price.

Intrepid said there was lower third-quarter production at the West Mine and Moab mines. The West production was off due to lower relative ore grade and the temporary decreased performance of a binding chemical purchased for flotation. The lower ore grade was attributed to the result of mine development work, which is being performed to open and prepare additional mine panels and will lead to higher ore grades. Intrepid also noted that first and fourth quarter production typically exceeds second and third quarter at the Utah facilities. This is a result of the evaporation cycle at the solar facilities peak in the spring and summer months.

Intrepid noted that production costs were up in the quarter, to $190/st versus the year-ago $113/st. Much of this includes higher natural gas prices, as well as previously reported increases in personnel costs. Intrepid has been beefing up its work force in order to minimize any impact from turnover, and also to increase the reliability and throughput at its mines.

Intrepid has spent $49 million in the first nine months on capital expenditures to upgrade its mines. It has also budgeted $5-$15 million this year for an HB solution mining solar evaporation project in New Mexico. It plans to begin work on this plan once it receives approval from the Bureau of Land Management. This expansion will take one year to complete once construction begins, with full capacity achieved in two years.

Intrepid says the majority of its capital investment will come in the fourth quarter, in conjunction with scheduled turnarounds at its East and West mines. Total capital expenditures are expected to be $80-$95 million in 2008.

Intrepid has also just completed the first phase of a feasibility study into reopening the North Mine, which could eventually increase finished capacity by 500,000 st/y.

Nine-month net income was $101.4 million ($1.35 per share) on sales of $335.8 million, versus the year-ago $12.9 million ($.17 per share) and $157.1 million, respectively.

Intrepid’s production guidance for all of 2008 is 850-870,000 st of potash, with production costs of $155-$165/st. Langbeinite production is forecast at 200-215,000 st, with costs of $75-$85/st. Langbeinite guidance is down 15,000 st due to a lower-than-budgeted operating factor at the East Mine, which Intrepid is working to improve through electrical upgrades during its extended maintenance turnaround. However, the company expects its full-year East Mine production for both potash and langbeinite to exceed 2007 output.

As of Sept. 30, Intrepid noted that it has $139 million in cash, no outstanding debt, and $125 million of availability under a revolving line of credit. The cash balance had grown to $153 million as of Oct. 31. Jornayvaz told analysts all these factors allow the company to be disciplined marketers of its product.

“While we may debate and question people’s upcoming shopping patterns for the Christmas season on the default rate on mortgages, we know people will continue to eat,” Jornayvaz told analysts. While he noted that farmers have put off buying in the near term, he said the logical long-term outcome is for fertilizer demand to continue to expand due to the growing demand for grain and protein worldwide after this period of uncertainty clears. He also said credit in the farm sector is relatively stable, and that August and September saw the two lowest potash inventories on record. In addition, he noted that the larger potash suppliers have historically shown the inclination to independently curtail supply in response to dips in demand.